CIT Q3 Earnings More Than Double on Tax Benefit

CIT Group reported Q3/14 net income of $515 million, up from net income of $200 million for the year-ago quarter. CIT said net income for the three month period ended September 30, 2014 included a $375 million income tax benefit associated with the partial reversal of the valuation allowance related to the U.S. Federal deferred tax asset.

Net income for the nine month period ended September 30, 2014 was $879 million compared to $546 million for the period ended September 30, 2013.

Pre-tax earnings for the quarter were $162 million, up from $151 million in the year-ago quarter and from $148 million in the prior quarter, which included a $7 million net benefit in interest expense due to the refinancing of secured debt within the TRS. The increase from the year-ago quarter reflected asset growth that offset lower gains on sale and higher operating expenses, while the increase from the prior quarter primarily reflected asset growth and higher non-spread revenue.
Financing and leasing assets grew to $19.1 billion at September 30, 2014, up from $18.4 billion at June 30, 2014 and from $15.6 billion a year ago.

The increase from the prior quarter reflected growth in all transportation divisions, with Aerospace and Maritime accounting for the majority of the growth. The $3.5 billion, or 22%, increase from September 30, 2013 included growth of $1.8 billion in Aerospace, $1.4 billion in Rail, which included the European rail acquisition in the 2014 first quarter, and $0.5 billion in Maritime. Assets Held for Sale remained elevated largely due to the addition of loans from our International Finance division in the prior quarter. New business volume was $1.3 billion and consisted of $0.6 billion of operating lease equipment, including the delivery of 7 aircraft and approximately 1,500 railcars, and the funding of $0.7 billion of finance receivables.
Net finance revenue was $226 million, up $38 million from the year-ago quarter due primarily to earning asset growth and up $11 million sequentially excluding the prior quarter’s interest expense benefit from the refinancing of secured debt in the TRS. Net finance margin was 4.82% compared to 4.87% in the year-ago quarter and 4.91% (4.75% excluding the impact from debt redemptions) in the prior quarter. The margin was down from the year-ago quarter reflecting lower net rental yields in Aerospace, and was up sequentially, excluding the impact from debt redemptions, reflecting lower funding costs. Gross yields in Aerospace were 11.8%, down sequentially reflecting reduced prepayment benefits in the loan portfolio and lease re-pricings, while gross yields in Rail increased slightly to 14.6% reflecting higher utilization and favorable re-pricings.

Other income was $19 million, down from $31 million in the year-ago quarter and up from $10 million the prior quarter largely reflecting changes in gains on asset sales.

Provision for credit losses was $9 million, up slightly from the year-ago quarter and sequentially reflecting reserve build on new originations as charge-offs were down from both periods.

Operating expenses were $74 million, up from $63 million a year ago and down slightly sequentially. The increase from the year-ago quarter reflects the European rail acquisition and continued investment in growth initiatives.

During the quarter we agreed to purchase 30 new aircraft with delivery dates through 2020: – 10 787 Boeing Dreamliners, 15 Airbus A330neos and five Airbus A321ceos. Utilization remained strong with all but two commercial aircraft and 99% of rail equipment on lease or under a commitment at quarter-end. All aircraft scheduled for delivery in the next 12 months and approximately 80% of railcars on order, have lease commitments.

North American Commercial Finance

Pre-tax earnings for the quarter were $62 million, down from $84 million in the year-ago quarter and from $93 million in the prior quarter. The decrease from both quarters was largely attributable to higher credit costs.

Financing and leasing assets grew to $16.4 billion, up from $15.7 billion at June 30, 2014 and from $14.7 billion at September 30, 2013, reflecting the addition of approximately $550 million of loans and leases in Direct Capital reported in the Equipment Finance division, as well as solid new business volumes. Funded loan and lease volume totaled $1.6 billion, up from $1.4 billion in the year-ago quarter, and unchanged from the prior quarter. The increase from the year-ago quarter reflected higher volumes in Real Estate Finance and volume from Direct Capital, partially offset by a decrease in Corporate Finance.